As India moves closer to self-reliance, a recent development signals another step forward. The Cabinet Committee on Security has approved the country’s largest domestic ammunition contract—rockets worth over ₹100 billion will be produced in India over the next decade to meet the army’s needs.
Read this | The calm before the storm: Three defence stocks on radar
The order has been awarded to private entities Economic Explosives Ltd and Munitions India Ltd, which will manufacture the Pinaka rocket system using technology developed by DRDO. The Pinaka is an indigenous multiple-launch rocket system designed to deliver high-volume firepower in a short timeframe.
The push for domestically made rockets and launch systems has created multiple opportunities in the listed space.
Among the key players, Solar Industries is targeting 20% of its revenue from the defence sector this year and had hinted at securing the Pinaka order in its last earnings call. Premier Explosives is another notable participant in this space. Bharat Electronics Ltd (BEL), while not directly involved in rocket production, supplies critical communication subsystems for the system.
However, beyond these well-known names, there are smaller players in the ecosystem worth tracking.
Smallcap defence opportunities
Two smallcap stocks that stand out in this space are Goodluck India and Nibe Ltd.
Goodluck India, founded by IIT alumni and led by a first-generation tech entrepreneur, has its roots in the steel industry, manufacturing cold-rolled sheets, precision forgings, and metal solutions for sectors like aerospace, oil & gas, and automobiles.
The company is transitioning from a commodity steel manufacturer to a high-value engineering solutions provider. In FY23, it expanded forging capacity, allowing it to produce single pieces of up to 14,000 kg and an annual total of 30,000 MT. Nearly half of its production is now high-margin, value-added products.
The company supplies key defence entities, including HAL, DRDO, ISRO, BEML, Mazagon Dock Shipbuilders, and L&T. It is involved in prestigious defence programs such as BRAHMOS missiles, Pinaka rockets, and indigenous rocket launchers. While defence currently accounts for just 2% of its revenue, this mix could shift in the coming years.
Goodluck India is investing ₹2 billion in a dedicated aerospace and defence facility under its subsidiary, Goodluck Defence and Aerospace, set to be operational by FY25. Management expects this plant to be a game-changer, contributing ₹3–3.5 billion in revenue and significantly improving margins.
Financially, Goodluck India has a ₹28 billion market cap, with ₹37 billion in trailing 12-month revenue and an Ebitda margin of around 8%. It boasts a return on equity above 15%, a comfortable debt-to-equity ratio, and trades at a P/E of 18.5x.
Nibe Ltd is another smallcap worth monitoring. The company operates in the EV and defence sectors, manufacturing components for the Pinaka Launching System. It has an exclusive manufacturing agreement with Munitions India Ltd for ammunition exports.
Its financials indicate healthy return ratios and a low debt-to-equity level. The stock trades at a P/E of 60x, which appears high, but rapid earnings growth has kept its price-to-earnings-growth (PEG) ratio below 1.
Also read | In 6 charts: Budget report card on defence, exports revival, Olympic dreams
Do note that no view is implied on any of these stocks. The information above is for educational purpose.
We believe these will be good candidates to keep on your watchlist as India aspires for self sufficiency in defence.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
